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Lenexa Hotel, LP v. Holiday Hospitality Franchising, Inc.

United States District Court, D. Kansas

May 24, 2017

LENEXA HOTEL, LP, Plaintiff,
v.
HOLIDAY HOSPITALITY FRANCHISING, INC., Defendant.

          MEMORANDUM AND ORDER

          KATHRYN H. VRATIL, United States District Judge

         Lenexa Hotel, LP brings suit against Holiday Hospitality Franchising, Inc. (“Holiday Franchising”) for breach of contract, breach of implied duty of good faith and fair dealing, breach of fiduciary duty and declaratory judgment.[1] This matter is before the Court on Holiday Hospitality Franchising, LLC's Motion To Dismiss (Doc. #3) filed August 31, 2015. For the following reasons, the Court overrules defendant's motion.

         Legal Standards

         In ruling on a motion to dismiss under Fed.R.Civ.P. 12(b)(6), the Court assumes as true all well-pleaded factual allegations and determines whether they plausibly give rise to an entitlement of relief. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009). To survive a motion to dismiss, a complaint must contain sufficient factual matter to state a claim which is plausible - and not merely conceivable - on its face. Id. at 679-80; Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). To determine whether a complaint states a plausible claim for relief, the Court draws on its judicial experience and common sense. Iqbal, 556 U.S. at 679.

         The Court need not accept as true those allegations which state only legal conclusions. See id.; Hall v. Bellmon, 935 F.3d 1106, 1110 (10th Cir. 1991). Plaintiff bears the burden of framing its complaint with enough factual matter to suggest that it is entitled to relief; it is not enough to make threadbare recitals of a cause of action accompanied by conclusory statements. Twombly, 550 U.S. at 556. Plaintiff makes a facially plausible claim when it pleads factual content from which the Court can reasonably infer that defendant is liable for the misconduct alleged. Iqbal, 556 U.S. at 678. Plaintiff must show more than a sheer possibility that defendant has acted unlawfully - it is not enough to plead facts that are “merely consistent with” defendant's liability. Id. (quoting Twombly, 550 U.S. at 557). A pleading that offers labels and conclusions, a formulaic recitation of the elements of a cause of action, or naked assertions devoid of further factual enhancement will not stand. Iqbal, 556 U.S. at 678. Similarly, where the well-pleaded facts do not permit the Court to infer more than the mere possibility of misconduct, the complaint has alleged - but has not “shown” - that the pleader is entitled to relief. Id. at 679. The degree of specificity necessary to establish plausibility and fair notice depends on context; what constitutes fair notice under Fed.R.Civ.P. 8(a)(2) depends on the type of case. Robbins v. Oklahoma, 519 F.3d 1242. 1248 (10th Cir. 2008) (citing Phillips v. County of Allegheny, 515 F.3d 225, 232-33 (3d Cir. 2008)).

         Case History

         On December 10, 2012, plaintiff filed suit against Holiday Franchising in Case No. 12-2775-KHV in this Court. In that case, plaintiff asserted claims for breach of contract, breach of implied duty of good faith and fair dealing and declaratory judgment. See First Amended Complaint (Doc. #6) in Case No. 12-2775-KHV. In Count I, plaintiff asserted that Holiday Franchising breached its obligations under a licensing agreement by failing to (1) provide plaintiff access to the Holiday Franchising reservations service, (2) provide marketing and advertising and (3) permit plaintiff to use Holiday Franchising's marketing, reservation and management system as defined in the licensing agreement. Id. at 22-23. In Count II, plaintiff asserted that because Holiday Franchising had failed to provide “meaningful reservation services, ” it breached the implied covenant of good faith and fair dealing. Id. at 23-24. In Count III, plaintiff sought a declaratory judgment that it had substantially complied with its obligations under the licensing agreement and/or did not have to perform in light of Holiday Franchising's breach of the agreement. Id. at 25.

         Holiday Franchising filed a motion to dismiss asserting that plaintiff had failed to state a claim upon which the Court could grant relief. See Memorandum In Support Of Holiday Hospitality Franchising Inc.'s Motion To Dismiss Plaintiff's First Amended Complaint For Failure To State A Claim (Doc. #8) filed February 1, 2013 in Case No. 12-2775-KHV. Specifically, Holiday Franchising asserted that plaintiff (1) had failed to identify a specific provision of the license agreement which Holiday Franchising had breached, (2) could not assert a claim for breach of implied duty of good faith and fair dealing and (3) did not allege facts which gave rise to a case or controversy and therefore could not obtain declaratory relief. Id. at 5, 9-10. On September 3, 2013, the Court overruled the motion. See Memorandum and Order (Doc. #18) in Case No. 12-2775-KHV. The Court rejected Holiday Franchising's assertion that plaintiff had failed to identify a specific provision of the license agreement which Holiday Franchising had breached. Id. at 10. The Court found that plaintiff had sufficiently stated claims that by failing to provide reservation, marketing and advertising services, Holiday Franchising had breached its obligations under the license agreement. Id. at 11.

         On August 20, 2014, the parties jointly filed a motion to dismiss the case so that they could attempt to settle the matter out of court.[2] Joint Motion To Dismiss Without Prejudice Under Rule 41 (Doc #53) in Case No. 12-2775-KHV at 2. The parties asked the Court to enter an order which dismissed the claims subject to certain terms and conditions, including a condition that if plaintiff refiled the same claims in this Court, the Court would incorporate in the new case all motions and orders filed in the previous case, Case No. 12-2775-KHV. Id. On August 28, 2014, the Court entered an order of dismissal which included the parties' requested language, i.e. that all motions and orders filed in Case No. 12-2775-KHV shall be incorporated in any subsequent case in which the parties refiled their claims before this Court. Order Of Dismissal Without Prejudice (Doc #54) in Case No. 12-2775-KHV at 1-2.[3]

         On August 4, 2015, plaintiff filed its claims in this case. Complaint (Doc. #1). As noted, plaintiff asserts claims for breach of contract, breach of implied duty of good faith and fair dealing, breach of fiduciary duty and declaratory judgment. In Count I, plaintiff asserts that Holiday Franchising breached its obligations under the licensing agreement by failing to (1) provide plaintiff access to Holiday Franchising reservations services, (2) provide marketing and advertising services and (3) permit plaintiff to use the “System.” Id. at 30-31; see also Plaintiff's Memorandum In Opposition To Defendant's Motion To Dismiss (“Memorandum In Opposition”) (Doc. #6) filed September 21, 2015 at 8. In Count II, plaintiff asserts that because Holiday Franchising failed to provide “meaningful reservation services, ” it breached the implied duty of good faith and fair dealing. Complaint (Doc. #1) at 31-32. In Count III, plaintiff asserts that by actions or inactions that have “denied [plaintiff] the fruits of its License Agreement, ” Holiday Franchising has breached its fiduciary duty to plaintiff. Id. at 33. In Count IV, plaintiff seeks a declaratory judgment that it has complied with its obligations under the license agreement and/or that because of Holiday Franchising's breach of the license agreement, plaintiff is excused from performance thereunder.[4] Id. at 34-35.

         Factual Assertions

         Plaintiff alleges the following facts.

         Holiday Franchising operates over 700, 000 hotel rooms worldwide. Complaint (Doc. #1) ¶ 27. Its three major brands are (1) InterContinental, a luxury brand marketed to well-traveled, affluent guests; (2) Crowne Plaza, an upscale brand offering full service facilities targeted to upscale business, conference and leisure travelers; and (3) Holiday Inn, a midscale brand offering full service with a reputation for value. Id.

         Plaintiff is a Kansas limited partnership that owns and operates a full-service hotel located at 12601 West 95th Street (off Interstate 35) in Lenexa, Kansas (the “Hotel”). Id. ¶ 19. From 1971 to 1984, the Hotel operated as a Holiday Inn with 112 rooms. Id. ¶ 30. In 1984, it expanded to 297 rooms and converted to a Holidome Indoor Recreation Center. Id. In 2003, the Hotel converted to a Radisson. In 2009, it changed to a Crowne Plaza with 257 guest rooms on four floors. Id. ¶¶ 19, 30.

         At all relevant times, the Hotel has been one of two Crowne Plaza hotels operating in an area which Holiday Franchising defines as the Kansas City, Missouri-Kansas Metropolitan Statistical Area (“Kansas City MSA”). Id. ¶¶ 1, 6. The other Crowne Plaza hotel is located in downtown Kansas City, Missouri, about 14 miles from the Hotel. Id. ¶ 6. An InterContinental Hotel operates on the Country Club Plaza in Kansas City, Missouri. Id. Together, these hotels are the only Holiday Franchising upscale or luxury hotels which operate in the Kansas City MSA. Id.

         In early 2007, when the Hotel operated as a Radisson hotel, plaintiff contemplated converting it to another brand. Id. ¶ 31. Stephen Craig, a limited partner in plaintiff, and William Stuckeman, plaintiff's executive, had numerous conversations with representatives of Holiday Franchising. Id. ¶¶ 13, 31. Because converting the Hotel to a Crowne Plaza would cost millions of dollars and require hundreds of thousands dollars in annual royalties, Craig insisted on assurances that the Holiday Franchising reservations system would generate sufficient customer demand to justify the investment. Id. ¶ 32. Craig had extensive conversations and communications with Holiday Franchising representatives regarding the ability of Holiday Franchising to attract out-of-town business travelers and group demand to the Hotel. Id. ¶ 34. Holiday Franchising repeatedly represented that its reservation system - supported by the internet, call centers and travel booking system - would market the Hotel as one of only three Holiday Franchising upscale or luxury hotels in the Kansas City market. Id. Holiday Franchising represented that its marketing and internet experts would develop a plan to create visibility for the Hotel in all relevant marketing channels. Id.

         In August of 2007, Stuckeman made it clear that the key issue for plaintiff was whether Holiday Franchising could demonstrate the ability to generate through its reservations system corporate transient and group demand for the Hotel. Id. ¶ 37. Holiday Franchising representatives, Keith Biumi and Mike FitzMaurice, [5] represented that Holiday Franchising internet experts would evaluate the Kansas City market and strategically pick key words to identify the Hotel as an upscale Kansas City hotel. Id. ¶ 38. Holiday Franchising represented that it would buy advertising words designed to maximize the Hotel's internet visibility and bring the Hotel to the forefront of internet search engines used by business travelers and upscale consumers, as well as travel sites like Hotels.com, Expedia and Travelocity. Id. Holiday Franchising repeatedly touted that based on the Crowne Plaza brand, the Hotel would realize immediate and significant benefits from the central reservations system. Id. ¶ 39.

         Holiday Franchising recognized that the Hotel operated in the same market as the Crowne Plaza hotel in downtown Kansas City. Id. ¶ 36. Holiday Franchising represented to plaintiff that with a Crowne Plaza hotel located in downtown and an InterContinental hotel located on the County Club Plaza, the Hotel would benefit from cross-marketing within the Kansas City market. Id. Holiday Franchising represented that it would support a relationship between the Hotel and the other hotels to collectively enhance and coordinate efforts between the Holiday Franchising upscale and luxury brands in Kansas City. Id.

         In May of 2008, plaintiff and Holiday Franchising signed a ten-year franchise licensing agreement. Under the agreement, plaintiff paid Holiday Franchising $74, 000, committed to spend over $7 million to convert the Hotel to a Crowne Plaza and agreed to pay Holiday Franchising a percentage of all revenues generated over the ten-year franchise term. Id. ¶ 5. As a condition of the license agreement, plaintiff agreed to a Property Improvement Plan (“PIP”) which required it to spend millions of dollars to renovate the Hotel. Id. ¶ 45. Before executing the license agreement, Holiday Franchising provided a Uniform Franchise Offering Circular (“UFOC”) which confirmed representations that Holiday Franchising had previously made regarding access to a central reservation system, advertising and marketing, and Holiday Franchising's ability to drive demand to the Hotel. Id. ¶ 47. The license agreement incorporates by reference a Franchise Disclosure Statement (“FDS”) and a Brand Standards Manual (“BSM”). Id. ¶¶ 49, 51. Together, the license agreement, FDS, BSM and UFOC define the relationship between Holiday Franchising and all hotels in the “System, ” including the Hotel. Id. ¶ 52. Holiday Franchising drafted the license agreement and FDS for uniform use throughout its Crowne Plaza franchise system, i.e. the System. Id. ¶ 50. The documents set forth terms and conditions that are not subject to individualized negotiations by individual franchisees such as the Hotel. Id. The license agreement states that the “System” includes “access to a reservation service operated in accordance with specifications established by [Holiday Franchising].” Id. ¶ 54. To hotels such as the Hotel, participation in the Holiday Franchising reservations system is the single most valuable benefit obtained through the franchise agreement. Id. ¶ 55.

         On May 6, 2009, after spending millions of dollars in upgrades, the Hotel opened as a Crowne Plaza hotel. Id. ¶ 101. At that time, the Hotel became dependent on Holiday Franchising's reservations system, and its revenues dropped. Id. ¶ 7. Holiday Franchising knew that it was important to promote the Hotel as being located in the Kansas City market. Id. ¶ 102. Nevertheless, Holiday Franchising failed to take steps to associate the Hotel with key words to identify it in the Kansas City market. Id. ¶ 103. Instead, Holiday Franchising took steps to disassociate and hide the Hotel's presence in the Kansas City market. Id. ¶¶ 42, 104. Holiday Franchising's actions caused a significant reduction in the Hotel's visibility within reservations channels and inhibited the ability of potential guests to locate the Hotel in the Kansas City market. Id. ¶ 42.

         In July of 2009, plaintiff noticed that the Holiday Franchising reservations system had sent almost no business to the Hotel. Id. ΒΆ 117. Plaintiff investigated the matter and discovered that for guests looking for a Crowne Plaza hotel in Kansas City, ...


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